Commerce Exam > Commerce Notes > DK Goel Solutions: Common Size Statements
DK Goel Solutions: Common Size Statements - Commerce PDF Download
Q1: The following data is related to Cambridge Ltd.
Now, you are required to prepare a Common Size Balance Sheet.
Ans:
Cambridge Ltd.
Common Size Balance Sheet
As at 31.3.2018 and 31.3.2019
Q2: Following is the Statement of Profit and Loss of Crown Ltd. for the year ended 31.3.2018:
You are required to prepare a common size statement of P & L of Crown Ltd. for the year ended 31.03.2018.
Ans:
Crown Ltd.
Common Size Income Statement
As at 31.3.2018
Q3: What are Common Size Statements?
Ans: Common Size Statements express all items of a financial statement as a % of some common base such as revenue from operations for P & L statement and total assets for the balance sheet.
FAQs on DK Goel Solutions: Common Size Statements - Commerce
| 1. What are common size statements in commerce? |  |
Ans.Common size statements are financial statements that present all line items as a percentage of a base item. In the income statement, each item is expressed as a percentage of total revenue, while in the balance sheet, each item is expressed as a percentage of total assets. This allows for easy comparison between companies of different sizes and helps in analyzing financial performance.
| 2. How can common size statements help in financial analysis? | |
Ans.Common size statements assist in financial analysis by enabling analysts to identify trends and make comparisons across companies or time periods. By converting financial data into percentages, analysts can easily assess the proportion of expenses, revenues, and other financial metrics, which aids in understanding the financial health and operational efficiency of a business.
| 3. What are the advantages of using common size statements? | |
Ans.The advantages of using common size statements include simplified financial analysis, improved comparability between firms of different sizes, enhanced clarity in understanding cost structures, and the ability to track changes over time. They help stakeholders make informed decisions by providing a clearer picture of financial ratios and performance indicators.
| 4. How do you prepare a common size income statement? | |
Ans.To prepare a common size income statement, start with the standard income statement and express each line item as a percentage of total revenue. For example, if total revenue is $100,000 and the cost of goods sold is $40,000, the cost of goods sold would be presented as 40% of total revenue. Repeat this process for all items in the income statement.
| 5. What is the significance of common size statements in comparing companies? | |
Ans.Common size statements are significant in comparing companies because they normalize financial data, making it easier to evaluate performance irrespective of company size. Investors and analysts can assess profitability, efficiency, and cost management by comparing the percentage of expenses and revenues, thus aiding in investment decisions and financial forecasting.
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Nov 13, 2024 Last updated |
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